DAN LOEB: Be Prepared To Buckle Your Seatbelt

Closely followed fund manager Daniel Loeb, CEO of Third Point,
just sent out his first-quarter investor letter.

So far this year, Third Point's Off Shore Fund is up 3.3%.
The S&P is up 1.8%.

It's a solid quarter considering that it's been a brutal year for
hedge funds. To put it in perspective, the average fund is up
only 1.23%, according
to research from Preqin.

Loeb writes that mortgages are what helped Third Point's
portfolio in the first quarter.

Loeb also says this year has been challenging: "Looking back, perhaps our
optimism at the beginning of the year was
misplaced."

He warns that, come this fall, we should be prepared to "buckle
our seatbelts" if the Fed's tapering ends. Loeb sees more
volatility because of this.

From the letter:

Despite its challenging start, it appears as we begin May that
the U.S. economy is beginning to accelerate from the low levels
of Q1. As a result, perhaps 2014 will be the year where one
should not “Sell in May and go away”. Nevertheless, it is
important to keep in mind that by this Fall, we will have had
negative real interest rates in the U.S. for a longer consecutive
period than at any other time – even after the Great Depression.
As tapering ends, most likely in October, and the discussion
shifts to an impending first rate hike (probably around the time
when unemployment is approaching 6% and inflation is ticking
higher), we will have to buckle our seatbelts for an inevitably
more volatile environment.

Also, similar to David Einhorn's investor letter last week, Loeb
writes "certain sectors were clearly exhibiting bubblelicious
valuations." Einhorn,
who runs Greenlight Capital, wrote that we are seeing our
second tech bubble in 15 years.